With elections now over in Nigeria, almost, the economy takes centre stage following a muted recovery that still leaves the country vulnerable to both internal and external shocks, according to the monetary institutions. All eyes are on the president to make good on his promises of removing the hurdles that prevent the country from achieving its economic potential, writes Martins Azuwike

The tensions generated by February’s presidential election continue with opposition candidate Atiku Abubakar still insisting that the poll was rigged in favour of the incumbent Muhammadu Buhari. His demand for a fresh ballot is currently with the Elections Petitions Tribunal but the fireworks being let off by the separate legal teams are expected to last as long as the rules will allow, not to mention the number of political maneuvers both parties have up their sleeve.

At the state elections in March, there were also accusations of fraud and outbreaks of violence, leading the Independent National Electoral Commission (INEC) to declare that the ballots in seven states – Rivers, Bauchi, Kano, Sokoto, Benue, Plateau, and Adamawa – were “inconclusive”. The re-run of the poll in five of the states was held later in the month but many have joked that the word ‘inconclusive’ should be added to the name of the electoral commission.

As President Buhari begins his second term, albeit with the distraction of the aforementioned election row, all eyes are once again on the economy, which he acknowledges remains in need of urgent attention . When his administration took over in 2015, the exchange rate went out of sync with the value of the naira and by 2016 the economy haemorrhaged to a negative growth of -1.5

per cent GDP, pushing the country into its worst recession in more than two decades. Although, there has been a level of recovery, in part due to a rebound in oil prices, inflation is at 11 per cent – down from 18 per cent but still too high for comfort. The World Bank projects it to hit 13 per cent-plus in 2019. Meanwhile interest rates remain outrageously steep, between 13.5 per cent and 22 per cent.

While it is hoped that the Buhari’s re-election has the advantage of continuity in terms of how the country’s finances are run, many feel that greater dynamism is required to clearly steer the country away from choppy economic waters that surround it.

Though government envisages 3.01 per cent GDP growth in its 2019 budget, the International Monetary Fund (IMF) says in its latest executive board report, released early April, that it will hover around 2. 5 per cent over the medium term, but that without a strong reform drive, per capita income will remain stagnant. Four years after the global collapse in oil prices, as of April 4 crude oil prices hit $70 per barrel for the first time since November 2018 as expectations of tight global supply offset pressure from surge in US production. But high interest rates, weak GDP growth, fragile consumer demand, poor infrastructure and irksome energy issues, not to mention traffic gridlock on Lagos port roads and insecurity in some parts of the country, mean that doing business in Nigeria is far from easy.

Unemployment remains the government’s biggest single headache. The stark reality of the problem was driven home in April when the Customs Service advertised for applications to fill 3,200 vacancies. Within 24 hours of opening the online portal, 91,000 Nigerians applied In the most recent data supplied by the National Bureau of Statistics (NBS), unemployment stands at 18.8 per cent and underemployment at 21.2 per cent. Those out of work include more than 10 million people defined as ‘youth’. “The increasing unemployment and underemployment rates imply that, although Nigeria’s economy is officially out of recession, [the] domestic labour market is still fragile,” the NBS noted.

In a recent radio broadcast, commentator and author Austin Nweze stated that Nigeria only had the capacity to absorb 10 per cent of the graduates coming out of tertiary institutions, a number that is increasing year by year. Ngozi Okonjo Iweala, former finance minister, estimated in 2014 that no fewer than 1.8 million graduates enter the labour market annually. Nigeria, with a population of 180 million with more than half under the age of 24, has 150 private and public universities, whereas the US – population 319 million – has more than 5,000 higher education institutions. Together with the lack of jobs, this huge gap remains a ticking bomb.

According to the recent United Nations Global Report on Food Crisis 2019, Nigeria ranks among the eight countries in the world that experienced high levels of food insecurity last year. This was particularly so in the north of the country, where Boko Haram violence continues to wreak havoc. “At the peak of the lean season, three million were acutely food insecure in the three northeastern states affected by the Boko Haram insurgency,” the report said. “Protracted conflict and mass displacement disrupted agriculture, trade, markets and livelihoods, and pushed up food prices,” said the report.

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High cost of corruption

Corruption in high places continues to be a drain on the economy. In March, the United States Department of State said of Nigeria: “Although the law provides criminal penalties for conviction of official corruption, the government did not implement the law effectively and officials frequently engaged in corrupt practices with impunity. Massive, widespread, and pervasive corruption affected all levels of government and the security services.” In addition, Transparency International scored Nigeria 27 out of 100 in its 2018 Corruption Perception Index, below the regional average of 32, and noted that less than a quarter of the various anti-graft commitments and promises made by the Buhari administration since he assumed office had been delivered.

As the country emerged from recession in the second quarter of 2017, the government introduced its Economic Recovery and Growth Plan (ERGP) that laid out a three-year strategy for achieving growth. Yet many analysts believe that the long-hoped for recovery is already beginning to stutter, with the country remaining vulnerable to global shocks.

Last year’s IMF verdict on the ERGP concluded: “Reforms... have resulted in significant strides in strengthening the business environment and steps to improve governance. However, all these factors have not yet boosted non-oil non-agricultural activity, brought inflation close to the target range, contained banking sector vulnerabilities, or reduced unemployment. A higher fiscal deficit driven by weak revenue mobilisation amidst still tight domestic financing conditions has raised bond yields, and crowded out private sector credit.”

It added: “Higher oil prices are supporting the near-term projections, but medium-term projections indicate that growth would remain relatively flat, with continuing declines in per capita real GDP under unchanged policies. The improved outlook for oil prices is expected to provide welcome relief from pressures on external and fiscal accounts, and growth would pick up to 2.1 percent in 2018, helped by the full year impact of greater foreign exchange availability and recovering oil production.”

Risks were mainly centred on lower oil prices and tighter external market conditions, while heightened security tensions and weak implementation of structural reforms were among the other flashpoints.

The London-based Financial Times seemed to hit the nail on the head when it said in a recent editorial that Buhari had run the economy without any clear direction, advising him to use his second term to take the bull by the horns or go down in history as a general who should have stayed back in his barracks.

Buhari certainly didn’t get off to a good start when he entered Aso Rock four years ago, taking six months to form his cabinet despite the economy buckling beneath the global oil crisis that saw the price of a barrel of oil almost halve. In a country where oil generates almost 90 per cent of export revenues and 70 per cent of foreign exchange earnings this was the worst news possible.

Things have picked up somewhat. GDP statistics released by the NBS show that the Nigerian economy grew by 1.81 per cent year-on-year in the third quarter of 2018. This figure indicates an expansion in the economy for Q3 2018, compared to the 1.17 per cent GDP growth rate of the corresponding quarter in the previous year. There was also an improvement in the quarter-on-quarter GDP growth rates from 1.50 per cent in Q2-2018. On the other hand, the year-on-year nominal growth rate was 13.58 per cent.

But this performance is lower than the IMF and ERGP growth forecasts of 2.1 per cent and 4.1 per cent respectively for 2018. The IMF, while acknowledging Nigeria’s “ongoing economic recovery, accompanied by reduced inflation and strengthened reserve buffers”, said that the outlook was “muted”, adding: “Over the medium-term, with absent of strong reforms, growth would hover around 2.5 per cent, implying no per capita growth as the economy faces limited increases in oil production and insufficient adjustment four years after the oil price shock. Monetary policy focused on exchange rate stability would help contain inflation but worsen competitiveness if greater flexibility is not accommodated when needed.”

It continued: “High financing costs, on the back of little fiscal adjustment, would continue to constrain private sector credit, and the interest-to-revenue ratio would remain high. Risks are moderately tilted downwards. On the upside, oil prices could rise, prompted by global political disruptions or supply bottlenecks.”

President of the Lagos Chamber of Commerce and Industry (LCCI), Babatunde Paul Ruwase, told journalists early March that the private sector should play a more central role in the ERGP. “This economy is blessed with quality entrepreneurs that can transform our huge potentials into concrete outcomes and value creation if they have the right environment,” he explained.

In March, during a victory tour of the country President Buhari assured people that his government was taking the issue of the economy seriously, particularly the high youth employment rate, but warned: “My last lap of four years will be tough.” That did not go down too well with those who feel they have struggled long enough. Since then the president has been less blunt, saying that he would work hard to leave the country better than he met it.

At the Central Bank of Nigeria’s September 2018 Monetary Policy Committee meeting, governor Godwin Emefiele warned that urgent steps needed to be taken to implement 2018 budget in order to avert the economy relapsing into another gale of recession. It is disappointing, then, that at the time of going to press the 2019 budget is yet to be passed and signed into law four months into the year.

While the Book of Lamentations may not have been written with Nigeria in mind, the government is doing battle with a wagon-load of intangible but debilitating factors that leave more than half the people living in Africa’s largest economy poor.

Oil on troubled waters

Unstable oil prices have continued to fuel economic fears. While it seemed the bulls were in control of oil markets, posting fresh four-month highs on tighter supply conditions, prices crashed in the third week of March as poor economic signals boosted bearish sentiment, according to OilPrice.com.

Venezuela and Iran continue to report outages, while the surprise drawdown in US inventories seemed to give oil bulls the upper hand. Signals from the US Federal Reserve that it was going to hold off on interest rate hikes this year should also have been bullish for oil, but global jitters have hit oil markets, too, OilPrice.com said.

According to Vitol, the world’s largest oil trader, oil demand will peak within 15 years. “We anticipate that oil demand will continue to grow for the next 15 years, even with a marked increase in the sales of electric vehicles. But that demand growth will begin to be impacted thereafter,” Russell Hardy, Vitol’s chief executive, told the Financial Times.

Despite the Fed’s more dovish turn, analysts remain firm in their conviction that the US central bank sees the global economy slowing at a greater rate than previously thought, even though the move could be positive for oil prices.

In addition to this, Trump’s economic team sees an upside to high oil prices. “If the United States becomes an annual net exporter of petroleum, higher oil prices would, on average, help the US economy,” the Council of Economic Advisers said in annual economic report, obtained by Bloomberg. “In this case, the net gains for producers, and to their private partners that own mineral deposits, would outweigh the higher costs for consumers.” The conclusion flies in the face of Trump’s preference for low prices, according to OilPrice.com

Oil suffered steep losses in the last week of October 2018 spurred by renewed fears over a possible round of glut in supply, according to industry experts. In response to this, Saudi Arabia and Russia agreed to extend their co-operation to control production levels.

OPEC, for its part, pondered a production cut to mitigate inventories rise. Oilprice Intelligence Report maintains: “The fears of $100 oil seem long gone.” However, there are a cacophony of voices coming out of the group. While Saudi oil minister Khalid al-Falih says OPEC is in “produce as much as you can mode”, a technical committee offering recommendations to the cartel favoured preparing “options” for production plans in 2019 to avoid a glut.

Experts are of the opinion that Nigeria would need greater investment to keep production from falling. “Nigeria’s oil production is expected to remain stable in the short to medium term, with new projects offsetting the decline from mature fields,” noted Rystad Energy in a new report. “The timely development of these resources is seen as key for maintaining the country’s oil supply. Nigeria used to produce over 2 million barrels per day but instability has dropped that figure to about 1.7 mb/d. Production could return to about 2 mb/d in the medium-term but the timely development of new discoveries will be needed to keep production stable. Existing output is expected to erode in the years ahead.”

The report also indicated that agriculture GDP grew by 1.19 per cent in the period under review compared to 3.0 per cent in the first quarter of 2018. Crop production grew by 1.49 per cent in Q2 – the slowest growth experienced since 1987 when it contracted by -4.0 per cent. It said: “Broadly speaking, growth in Q2 2018 was driven by developments in the non-oil sector as services sector recorded its strongest positive growth since 2016. However, the relatively slower growth when compared to Q1 2018 and Q2 2017 could be attributed to developments in both the oil and non-oil sectors.”

US Energy Information Administration (EIA) forecasts, which saw total global liquids inventories rising by an average of 200,000 bpd in 2018, also said this would be followed by a slightly larger surplus in 2019 at 280,000 bpd. Experts, however, say the estimate is a rough one, with so many factors at play, citing Iran sanctions and the EIA assumption of loss of 1 mb/d of Iranian production relative to the April 2018 peak at 3.8 mb/d. Analysts further say it is unclear how OPEC will react to the losses, even as the EIA assumes US production will grow by 1 mb/d this year.

In October Oilprice Intelligence Report said: “Oil started out the week seeing some volatility and choppy trading, awaiting more signs of a clear direction. Concerns over global economy weigh on crude. Crude oil posted steep losses over the past two weeks, the result of growing concerns about the health of the global economy. Other commodities, including copper, have also seen volatility.

“The market remained in wait-and-see mode. With Iran sanctions set to take effect in a few days, the market is awaiting further clarity. Saudi Arabia and Russia have vowed to cover any supply shortfall, but Iran’s oil exports likely won’t go to zero.”

The severe challenges facing Nigeria’s key sector saw petroleum minister Emmanuel Ibe Kachikwu warning of an energy crisis. Addressing the 11th edition of the International Conference and Exhibition by the Nigerian Gas Association in Abuja in October, he advocated a new focus on the best ways to harness the country’s enormous but untapped gas reserves. The country faces a more uphill task in the LNG market where new entrants have left the international environment constricted, meaning stiffer competition. In addition, the era of easy money appears to be over for the country as it no longer enjoys priority attention from oil and gas markets as competition from Southern and Eastern African countries hots up.

“Nigeria has a challenging environment and must broaden its economy beyond oil, hence the thrust of the gas policy is that we need to re-focus our economy using the competitive advantage of our gas towards the achieving gas based industrialisation,” Kachikwu said.

Commenting on the implications of low oil prices, LCCI director Muda Lawal, said: “The fiscal operations of government would be adversely affected. This may further threaten the ongoing discussion around the new minimum wage.”

Analysts have described the slump in oil prices as the equivalent of a tax hike and tax cut in oil exporting and importing economics respectively. According to estimates by Capital Economics analysts, every $10-per-barrel fall in oil prices boosts incomes by about 0.5 to 0.7 per cent of GDP in major emerging market oil importers. The same discount will cause a 3-5 per cent decline of GDP in most of the Gulf economies, and a slowdown of 1.5-2 per cent of GDP in Russia and Nigeria on an annualised basis.

The domestic forex market is already responding to recent sharp fall in oil prices. For instance, the local currency has dropped to N370/$ in the parallel market from N363/$ it traded for a better part of 2018. There are fears that the sharp fall in oil prices if sustained could lead to a shortage of the US dollar.

Said Lawal: “As capital flow reversals intensify, as oil price weakens, and as foreign reserves come under pressure, there are worries that the capacity of the Central Bank of Nigeria to sustain the current levels of intervention in the foreign exchange market will be tested.” Reserves currently stand at $42bn , down from $48bn five months ago.

“The improvement in liquidity and relative stability in forex market witnessed by businesses in 2018 will come under∏ threats due to declining receipts from oil.”

“This will have profound impact on the prices of imported goods and services leading to inflation.”

The figures speak for themselves

Nigeria ranks 115 out of 140 nations as judged by the World Economic Forum Global Competitiveness Index (GCI), and a lowly 47th on the ICT Global Connectivity Index list, according to Huawei’s latest annual report released in Shenzhen, China, that ranks 50 economies. The ranking means that Nigeria retains its status as a “beginner” behind South Africa (33) and Morocco (36), which fall under the “followers” category. It also reveals that the country sits three places lower than the previous year’s position. Its overall score has also declined so it is difficult to argue that Nigeria is turning the corner in creating a more conducive business environment.

The country also ranks 18 out of 61 low and middle-income countries, emerging third in Africa on internet affordability, according to a 2018 report by the Alliance for Affordable Internet. Worse still, Nigeria, Africa’s largest economy and the most populous black country on earth, also ranks sixth on the Global Misery Index.

In the World Bank’s latest Ease of Doing Business report, entitled Doing Business 2019: A Year of Record Reforms, Rising Influence, Nigeria dropped a spot to 146, after improving its ranking last year by 24 places, signifying that it has to work hard in maintaining its progress.

Meanwhile, in the World Bank’s Trading Across Borders survey, which measures the time and expense involved in importing and exporting goods, Nigeria ranks 182 out of 190 countries, below war-torn Syria and Afghanistan. The Lagos Chamber of Commerce and Industry (LCCI) says it can take 20 days to clear products, compared with 48 hours in neighbouring Benin and Ghana, while the Nigerian Shippers’ Council maintains that the cost of moving a container from Apapa port in Lagos has increased to N700,000 from about N150,000 in 2016.

Here is another depressing statistic: Based on World Bank data, Nigeria ranks 152 out of 157 countries on its Human Development Index. “This is a very loud message to Africa,” said the president of the World Bank Group, Jim Yong Kim. “The message here is that heads of state and ministers of finance have to take responsibility.” There was slightly better new from the United Nations Development Programme (UNDP), which reports that Nigeria’s Human Development Index has risen by two points with life expectancy increasing by eight years. The UNDP looked at health, education and standard of living in 187 countries.

Last year, findings based on a projection by the World Poverty Clock and compiled by Brookings Institute, revealed that Nigeria had emerged as the world’s poor capital, with almost 90 million said to be living in extreme poverty.

When it comes to governance, the picture is not much brighter. According to the 2018 Ibrahim Index of African Governance published by the Mo Ibrahim Foundation in October, Nigeria ranks 33rd out of 54 African countries. Its overall score dropped from 48.1 to 47.9, which is lower than the African average of 49.9 and also lower than the West African average of 54.3. While it received its highest category score in ‘participation and human rights’ with 53.2, its lowest score – 43.5 – came in ‘sustainable economic opportunities’.

The World Economic Forum ranked Nigeria 115 out of 140 countries in its 2018 Global Competitiveness Index. The core areas of concentration were institutions, ICT adoption, macro-economic environment, and skill and product market.

Given all this, Nigeria needs to smartly fight and invest in the priorities of the present and tackle current and future challenges to secure a brighter and fairer future for its citizenry.

However, auditors Deloitte has a more upbeat assessment of Nigeria, praising its Presidential Enabling Business Environment Council (PEBEC) for the way it had improved its ranking in the World Bank’s Ease of Doing Business Index by going from 170th (out of 190 countries) in 2016 to 145th the following year. This placed Nigeria among the 10 most improved business environments globally. However, Deloitte said there remained a lot of room for improvement in a business environment that still appeared “unfriendly”.

Generally, Nigerian businesses are exposed to multiple taxes and levies from various regulatory agencies that cut across each other, it pointed out. For example, in addition to the Federal Inland Revenue Service (FIRS), State Internal Revenue Service (SIRS) and Local Government Councils, which it refers to as the primary agencies, bodies like the National Assembly, the Revenue Mobilisation Allocation and Fiscal Commission (RMFAC), Ministry of Justice, and Economic and Financial Crimes Commission (EFCC) have also taken on the role of pursuing companies directly to enforce and monitor tax compliance.

“Direct enforcement by these other bodies beg the question of the legality of their involvement in tax administration,” it said, noting how banks have to now undergo tax compliance reviews conducted by RMAFC, despite previously undergoing audit by primary agencies.

FIRS and SIRS also conduct different types of reviews on taxpayers’ records some of which cover the same taxes and periods, it further explained.

“These multiple tax review processes can be quite hectic, spanning a number of months or years in some cases and requiring allocation of staff and other resources of the taxpayers to attend to regulators,” it said. “Taxpayers are also made to collate the same information multiple times for the different agencies; thus, making them incur significant costs as a result.”

It added: “The duplication of activities by government bodies in monitoring and ensuring tax compliance in Nigeria is clearly an inefficient use of resources by both government and taxpayers.”

Proffering solution to the problem, Deloitte advised the federal government to collapse the operations of various regulators with overlapping functions, leaving FIRS and SIRS to do the job. The focus should be on expanding the tax net, rather than overburdening the existing compliant taxpayers, it concluded.